Working Paper: CEPR ID: DP18139
Authors: Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský
Abstract: We study the consequences of multinational tax avoidance on the structure of government tax revenues. To motivate our analysis, we show that countries with high revenue losses due to profit shifting have lower corporate tax revenues and rates and higher indirect tax revenues and rates. To establish causality, we use German municipal data and analyse how changes in municipal trade tax rates levied on corporate profits affect local tax revenue structure. Following a trade tax rate increase, we find that municipalities with high exposure to aggressive multinationals experience a significant decline in trade tax revenue levels and shares.
Keywords: Corporate tax avoidance; Profit shifting; Multinational corporations; Government tax revenue structure
JEL Codes: E62; H26; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased profits shifted by multinationals (F23) | Decrease in proportion of tax revenues derived from corporate taxes (H29) |
| Increase in municipal trade tax rates (H29) | Decrease in trade tax revenue levels in municipalities with high presence of aggressive MNCs (F64) |
| Increase in municipal trade tax rates (H29) | Decrease in trade tax revenue shares in municipalities with high presence of aggressive MNCs (F64) |
| Profit shifting practices (H26) | Decrease in trade tax revenues in municipalities with high presence of aggressive MNCs (F64) |
| Increase in municipal trade tax rates (H29) | Increase in reliance on indirect taxes (H29) |
| Tax rate increases (H29) | Decrease in trade tax revenues (elasticity) (H30) |